SS INSTITUTE OF COMMERCE

SCO 82,1stFLOOR, SECTOR 46-C, CHANDIGARH

H.NO 1434, SECTOR-15, PANCHKULA,
MOBILE: 9872398046, 0172-4655515,
email: [email protected]

CONTROLLING

MEANING- controlling means ensuring the activities in an organisation are performed as per the plans. Controlling as
a process refers to taking corrective actions against deviation.

DEVIATION= STANDARD PERFORMANCE – ACTUAL PERFORMANCE

FEATURES OF CONTROLLING

1. It is a goal oriented function

2. It is a pervasive function
3. It is a primary function of manager
4. It should not be misunderstood as a last function of management. It is a function which brings back the
management cycle back to planning function
5. Controlling only completes one cycle of management process and improves planning in next cycle.
6. Controlling is both forward and backward looking function

IMPORTANCE OF CONTROLLING

1. Accomplishing organisational goals: -

Controlling brings the light to deviations, if any, and indicates corrective action. It thus, guides the
organisation and keeps it on the right track so that organisational goals might be achieved.
2. Judging accuracy of standards-
• Controlling enables management to verify whether the standards set are accurate.
• To keep a careful check on the changes taking place in the organisation and in the environment and
to review and revise the standards in the light of such changes.
3. Making efficient use of resources:
• Manager seeks to reduce wastage and spoilage of resources.
• Each activity is performed in accordance with predetermined standards and norms to ensure
efficient and effective utilisation of resources.
4. Improving employee motivation:
As employees know well in advance what they are expected to do and what are the standards of
performance based on which they will be appraised.
5. Ensuring order and discipline:
It helps to minimise dishonest behaviour on the part of employees by keeping a close check on their
activities
6. Facilitating coordination in action:
• Controlling provides direction to all activities
• Each department is governed by predetermined standards which are well coordinated with one
another.

1
LIMITATION OF CONTROLLING

1. Difficulty in setting quantitative standards:

When standards cannot be defined in quantitative terms makes measurement of performance and their
comparison a difficult task.
Examples- employees job satisfaction and human behaviour are such areas where this problem might arise.
2. Little control on external factors:
An enterprise cannot control external factors
such asa government policy, technological changes, competition etc.
3. Resistance from employees:
Employees see it as a restriction on their freedom.
For instance, employees may object when they are kept under a strict watch with the help of Closed Circuit
Televisions(CCTVs).
4. Costly affair:
It is a costly affair as it involves lot of expenditure, time and effort. A small organisation cannot afford to
install an expensive control system. It cannot justify the expenses involved.

CONTROLLING PROCESS
FOLLOWING STEPS-

1. SETTING PERFORMANCE STANDARDS:

• Standards are the criteria against which actual performance will be measured.
• Standards can be set in both quantitative term and qualitative terms
• Standards should be flexible enough to be modified whenever required. Due to changes taking place
in an environment.
• Examples of quantitative terms are like cost to be incurred, revenue to be earned, product units to
be produced and sold, time to be spent in performing a task.
• Examples of qualitative terms are like improving goodwill and motivation level of employees
2. MEASUREMENT OF ACTUAL PERFORMANCE:
• Performance should be measured in an objective and reliable manner
• Several techniques are used which includes personal observation, sample checking, performance
reports etc. measurement of company’s performance may involve calculation of certain ratios like
GP ratio, NP ratio, ROI etc.
• As far as possible, performance should be measured in same units in which standards are set as this
would make comparison easier
• Measurement should be done after the task is completed and wherever possible, measurement of
work should be done during the performance.
3. COMPARING ACTUAL PERFORMANCE WITH STANDARDS:
Comparison will reveal the deviation between actual and the desired results. Comparison becomes easier
when standards are set in quantitative terms
4. ANALYSING DEVIATIONS:
Deviations in key areas of business need to be attended more urgently as compared to deviations in certain
insignificant areas. Critical point control and management by exception should be used by a manager in this
regard.
• Critical point control: it is neither economical nor easy to keep a check on every activity in an
organisation. Control should therefore, focus on key result areas (KRAs)

2
 Which are critical to the success of an organisation. If anything goes wrong at the critical points, the
entire organisation can suffers
Example- an increase in 5% in the labour cost can be more troublesome than a 15% increase in
postal charges
• Management by exception: principle of management control based on the belief that an attempt to
control everything results in controlling nothing. Thus, only significant deviations which go beyond a
permissible limit should be brought to the notice of management.
Reasons for deviation
Unrealisticstandards, defective process, inadequacy of resources, structural drawbacks,
organisational constraints and environmental factors beyond the control of the organisation.
5. TAKING CORRECTIVE ACTION: -
• No corrective actions are required when the deviations are within the acceptable limits. However,
when the deviations go beyond the acceptable range especially in the important areas, it demands
immediate managerial attention so that deviation do not occur again and standards can be
accomplished.
• Corrective action might involve training of employees if the production target could be met, AA

STANDARDS USED IN FUNCTIONAL AREAS:

PRODUCTION - quantity, quality, cost, individual job, performance.

MARKETING -Sales volume, sales expense, advertising expenditures, individual and sales-person’s performance.

HUMAN RESOURCE MANAGEMENT – Labour relations, labour turnover, labour absenteeism.

FINANCE AND ACCOUNTING – Capital expenditures, inventories, flow of capital, liquidity.

ADVANTAGES OF CRITICAL POINT CONTROL AND MANAGEMENT BY EXCEPTION

1. It saves the time and efforts of managers as they deal with only significant deviations.
2. It focuses managerial attention on important areas. Thus, there is better utilisation of managerial talent.
3. The routine problems are left to the subordinates. Management by exception, thus, facilitates delegation of
authority and increases morale of the employees.
4. It identifies critical problems which need timely action to keep the organisation in right track.

EXAMPLES OF CORRECTIVE ACTION

CAUSES OF DEVIATION CORRECTIVE ACTION TO BE TAKEN
1. DEFECTIVE MATERIAL Change the quality specification for the material
used
2. DEFECTIVE MACHINERY Repair the existing machine or replace the
machine if cannot be repaired
3. OBSOLETE MACHINERY Undertake technological upgradation of
machinery
4. DEFECTIVE PROCESS Modify the existing process
5. DEFECTIVE PHYSICAL CONDITIONS OF Improve the physical conditions of work
WORK

RELATIONSHIP BETWEEN PLANNING AND CONTROLLING

1. PLANNING AND CONTROLLING ARE INSEPERABLE TWINS OF MANAGEMENT-

Controlling compares actual performances with standards of performance. These standards of performance serve as
the basis of controlling are provided by planning. Once a plan become operational, controlling is necessary to

3
monitor the progress and to ensure that events conforms to plans. When there is no plan, there is no basis of
controlling.

Thus, planning without controlling is meaningless. Similarly controlling is blind without planning.

2. PLANNING IS CLEARLY A PERQUISITE FOR CONTROLLING-

Planning seeks consistent, integrated programmes while controlling seeks to compel events to conform to plans.

3. PLANNING IS PRESCRIPTVE WHEREAS, CONTROLLING IS EVALUATIVE-

Planning is basically an intellectual process involving thinking, articulation and analysis to discover and prescribe an
appropriate course of action for achieving objectives. Controlling on the other hand, checks whether decisions have
been translated into desired action.

4. PLANNING IS A LOOKING AHEAD AND CONTROLLING IS LOOKING BACK:

The statement is partially correct. Plans are prepared for future and are based on forecasts about future conditions.
Therefore, planning involves a looking ahead and is called a forward-looking function. On the CONTRARY, controlling
is like a post-mortem of past activities to find out deviations from the standards. In that sense, controlling is a
backward-looking function.

5. PLANNING AND CONTROLLING ARE BOTH BACKWARD- LOOKING AS WELL AS FORWARD LOOKING FUNCTION:

Planning is guided by past experiences and corrective action initiated by control function aims to improve future
performance

Thus, planning and controlling are interrelated and in fact, reinforce each other in the sense that

• Planning based on facts makes controlling easier and effective, and

• Controlling improves future planning by providing information derived from experience.